On the third anniversary of the 2006 Microsoft-Novell pact, Novell is touting 475 customers who have bought SUSE Linux Enterprise certificates from Microsoft under the settlement. Under the controversial agreement, Novell agreed to give Microsoft either a percentage of all its Linux revenue through 2011 or a minimum of $40 million. Microsoft, in turn, bought $240 million in SUSE certificates that it could then resell to customers with mixed environments who wanted to buy new Windows servers and purchase Linux machines. In addition, Microsoft gave Novell another $108 million as a “balancing payment” in connection with the patent part of the deal.

This joint marketing initiative worked so well in the first two years that Microsoft committed to buying up to an additional $100 million in SUSE certificates in the summer of 2008. To date, Microsoft has only actually purchased an additional $25 million. In fact, SUSE certificate sales boomed so much in 2007 that they were cited as a major factor in SUSE’s three-point market share gain that year vs. Red Hat.

A look at the numbers after three years
While interoperability was the stated goal of the partnership, financial factors were the key motivator for both companies.

“While technical interoperability was the announced basis for the Microsoft relationship, Novell did the deal because it needed to jump start its Linux subscription sales,” said Bill Claybrook, founder of New River Marketing Research, a firm specializing in Linux. “In November 2006, Novell was on the tail end of four or five consecutive quarters of flat SUSE Linux Enterprise Server subscription sales. At the same time, Red Hat was reporting year over year increases in revenue and subscription sales of 30% – 40%, and Red Hat was already way ahead of Novell in subscriptions sold and in revenue from subscriptions.”
Fast forward to early 2009, Novell said last February that Microsoft sold $195 million in SUSE certificates through Oct. 31, 2008 at the two-year mark of the five-year agreement. At the three year mark, Microsoft has sold $226 million. Anyone looking at the numbers would reasonably conclude that the enthusiasm for the product has waned. Perhaps it’s the economy’s generally abysmal state in 2009 that accounts for the slow sales, but maybe it’s something else?

With these numbers in mind, it’s not surprising that there has been no further Novell announcement about additional Microsoft purchases of SUSE certificates from last summer’s “up to $100 million” commitment. Nor has there been any additional IDC study of SUSE inroads on Red Hat’s market share.

In addition, Claybrook says a bigger problem on the financial front has to do with what has happened with the purchased Novell certificates. While most have been sold, “… many of the firms that purchased the certificates have not implemented them, meaning that Novell is not collecting renewal subscription revenue.”

The Linux community’s reaction
Initially, reactions to the deal were overwhelmingly negative from the open source community, with very few people showing any optimism about how the partnership with Microsoft could help Linux.

Claybrook said that Novell’s business decision ignored this attitude in favor of the perceived financial incentives.

“Novell felt that the value of Linux interoperability with Windows was more important than what the open source community had to say or felt,” said Claybrook. “The two companies used comments extracted from customers about how important Linux/Windows interoperability was to their businesses as the primary reason that the deal was done. Several of the well-known, open source Linux developers within Novell took serious exception to the Novell-Microsoft deal and some quit the company.”

Stephen Holmes, former Novell Data Center employee and Linux specialist shared his experience and perspective. Holmes was at Novell in 2006, and remembers what it was like when the open source company announced the agreement with Microsoft.

“Those of us looking at it from a purely business perspective had a sense that it was better to play in the sandpit with the bully, to at least get to play with some of the toys (e.g., customers and revenue), rather than look at them playing alone with all of the toys themselves,” shared Holmes.

But not everyone was as pragmatic.

“Those who came from SUSE were incensed that we could dare to jeopardize the integrity and stability (social stability) of Linux and open source with such a deal,” said Holmes. “This played out with an unprecedented level of ire directed at us around that time — anger that persists to this day.”

And truly, it does. One of the most prominent reminders is the ongoing corporate watchdog site, Boycott Novell, which was founded following the pact.

Greater interoperability for end users, and contributions from Microsoft
But after three years, the results of the agreement are panning out. The numbers above indicate that financially, it may not have been the boon Novell was looking for. But technologically, end-users are benefiting from the agreement.

Steve Brasen, principal analyst at EMA shared a positive perspective on the affect on Microsoft’s involvement in open source that the agreement has contributed to.

“Naturally, Windows and Linux will continue to compete as OS platforms (and they should!), but this partnership has already provided concrete results in standardizing management services to aid in the creation of centralized solutions for supporting heterogeneous environments,” said Brasen. “What’s more, there is the potential for this relationship to provide even greater value for Novell customers in the future. For example, by expanding on Hyper-V’s support for SUSE Linux or by enhancing ZENworks with integrated management tools for Microsoft products.”

Holmes credited the partnership with the spurring further kernel interoperability efforts.

“Contributions to the Linux kernel and key projects such as clustering, storage and management have seen massive increase in contributions,” said Holmes. “Simply stated, customers don’t have single platform systems and they demand that companies such as Novell and Microsoft work together on many levels (OS, virtualization, management, security) and in this regard, although the outputs have been small they have mattered — particularly in virtualization interoperability.”

Beyond improved interoperability, Microsoft has become more friendly to and even contributed to open source projects.

“Microsoft is both using and contributing to the OpenPegasus Project’s Common Information Model Object Manager (CIMOM) and contributing to the open source community interoperable providers that collect management data so it is available for management services,” said Brasen. “I would suggest we should applaud both Novell and Microsoft for establishing this relationship and encourage them to continue with their collaboration efforts.”

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